ESI Dues Not At Par With PF, Pension Or Gratuity Dues; Neither Excluded From Liquidation Estate : NCLT Ahmedabad
Pallavi Mishra
4 Dec 2023 4:30 PM IST
The National Company Law Tribunal (“NCLT”), Ahmedabad Bench, comprising of Mrs. Chitra Hankare (Judicial Member) and Dr. Velamur G Venkata Chalapathy (Technical Member), has held that the dues of Employees State Insurance Corporation (ESIC) are not at par with the dues of Provident Fund, Pension Fund or Gratuity Fund under IBC. Consequently, ESIC dues not being 'workmen dues',...
The National Company Law Tribunal (“NCLT”), Ahmedabad Bench, comprising of Mrs. Chitra Hankare (Judicial Member) and Dr. Velamur G Venkata Chalapathy (Technical Member), has held that the dues of Employees State Insurance Corporation (ESIC) are not at par with the dues of Provident Fund, Pension Fund or Gratuity Fund under IBC. Consequently, ESIC dues not being 'workmen dues', are neither entitled to be excluded from liquidation estate nor entitled to be paid in priority over other dues.
Section 36(4)(iii) of IBC does not define the dues of ESIC as workmen dues and specifically mentions Provident Fund, Pension Fund and Gratuity Fund to fall under such category.
Background Facts
M/s Gupta Dyeing & Printing Mills Pvt Ltd. (“Corporate Debtor”) was registered as Principal Employer under Section 40 of the Employees State Insurance Act, 1948 (“ESI Act”).
All workers of the Corporate Debtor were registered with ESIC to avail sickness benefits, accidental benefits, dependent benefits, benefit of Atal Bima Yojna, maternity benefits etc. under the benevolent scheme of ESI Act.
The Corporate Debtor failed to deposit ESI contribution from April 2011 to March 2014. Thus, the ESIC invoked section 45A of ESI Act and issued a recovery certificate against the Corporate Debtor in 2016.
On 06.02.2019, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Subsequently, on 19.12.2019 the NCLT ordered liquidation of the Corporate Debtor. When ESIC submitted its claim before the Liquidator, the latter admitted the ESIC's claim under the category of unsecured Operational Creditor.
The ESIC (“Applicant') filed an application before NCLT, seeking order to restrain the Liquidator from including the ESI contribution in the liquidation estate, grant priority to ESIC dues and give pari passu charge with secured creditors on assets for the dues payable amounting to Rs.1,21,49,393/-.
ESIC contended that its dues were 'workman dues' since the amount could have been used for benefits in favour of workers. The ESI Act and Employees Provident Fund Act are equal benevolent legislation for the interest of workers and therefore interpretation in provisions of EPF Act would be applicable mutatis mutandis to the provisions of ESI Act. Since Provident Fund dues are excluded from liquidation estate assets and are to be paid in priority, similar treatment must be accorded to ESIC dues.
The Liquidator argued that the dues of ESIC were statutory dues which fall under category of Operational Debt and hence payable as per waterfall mechanism given under Section 53 of IBC. Further, Section 36(4)(iii) of IBC states that sums due to any workmen/employee from the provident fund, the pension fund and the gratuity fund are not be included in the liquidation estate assets. The section specifically talks about only three kinds of funds i.e., provident fund, pension fund and gratuity fund; and does not include any Insurance Corporation fund such as ESIC.
NCLT Verdict
The Bench observed that the Corporate Debtor defaulted in payment of ESIC dues prior to commencement of CIRP. The Liquidator has accepted the claim of ESIC as an unsecured Operational Creditor.
The Bench took the view that Section 36(4)(iii) of IBC does not define the ESIC dues as workmen dues except for PF, Pension Fund and the Gratuity Fund. Therefore, ESIC dues are not workmen dues and not liable to be paid in priority. Further, ESIC cannot demand its inclusion under the category of secured creditors.
“Role of Liquidator and powers are defined in Section 35 of the IBC, Liquidation Estate in Section 36 and determination of value of claims in Section 41 of IBC. Section 36(4)(iii) of the IBC does not define the ESIC dues as workmen dues except for PF, Pension Fund and the Gratuity Fund. Secured Creditor is defined in Section 52 of liquidation proceedings in which the ESIC cannot make a claim or status to be included.”
It was further opined that ESI Act does not contain any provision whereby any charge or special status can be given to ESIC, other than those provided in Section 45A of ESI Act.
“Insurance is a coverage on the premium paid whether run by private or government institution and offers a service when there is an event which is triggered and cannot be equated with other benefits which are protected under IBC. This applies for both state run and private institution, but there are imbibed provisions in the State Insurance which gives it a statutory status for compliance and is on par with the other authorities who are treated as operational creditors. There is no provision in the statute of ESIC for any charge or special status other than those provided in Section 45A of the ESIC whereby the applicant could have proceeded individually against the defaulter.”
The application has been dismissed.
Case Title: Regional Director, ESIC v Manish Kumar Bhagat
Case No.: IA/184(AHM)2021 in CP(IB) 537 of 2018
Counsel for Applicant: Mr. Sachin Vasavada, Adv.
Counsel for Respondents: Mr. Vishal Dave, Adv. a.w Mr. Nipun Singhvi
